The Conversation (0)
As focus once again shifts to China’s clampdown on rare earth, many within the sector feel that the country is moving in the right direction.
By Adam Currie — Exclusive to Rare Earth Investing News
China has dominated rare earth headlines for some time now, but never more so than over the past six weeks. In March, the US, European Union, and Japan formally requested that the World Trade Organization (WTO) launch an investigation into China’s rare earth export policy. The countries put forward the application because they believe that the current export quota system gives Chinese companies an unfair competitive advantage in the rare earth elements (REEs) market.
China currently exports more rare earth than any other economy in the world, supplying over 90 percent of materials sold on the international market.
In a swift response to the allegations of the three bodies, Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology, said, “[a]ll these measures, such as export quota controls, are meant to diminish environmental risks that have resulted from the disorderly development of the rare-earth industry.” He added that a lack of regulation for the sector will increase harm to the environment.
He went on to add that China’s regulations, which include production caps, export quotas, and stricter emission standards, were adopted only after a full consideration of “the ability of the environment to ensure effective supplies of rare-earth metals” was made.
Foreign firms welcome
In a move that has surprised many within the sector, China recently offered foreign firms the chance to co-develop its REE industry in a more environmentally-friendly manner. At a press conference, Hongren extended the invitation to “advanced foreign companies with strong technology and capital.”
“The U.S.’s, Japan’s and Europe’s [capabilities] in environmental management, recycling, technology research and development of high-end applications are welcome in China,” Hongren was quoted as saying by the Wall Street Journal.
Illegal mining clampdown
The call for technological advancement comes as the government begins to crack down on illegal mining activities. Illegal REE miners are known for using a simple chemical extraction process that involves digging several holes only a few feet in depth and feeding pipes into the holes. A concentrated mixture of chemicals is then pumped through the pipes, sinking into the clay below and leaching out REEs as it passes, often resulting in the contamination of water supplies.
Statistics from Ganzhou’s mine management bureau indicate that it has uncovered 52 instances of illegal rare earth mining in the first three months of this year alone. “Although mining methods have been improved over the decades, environmental damage is still inevitable, especially for water supplies,” said Zhang Xusheng, chief of Ganzhou’s environmental inspection team.
Despite widespread criticism, the fact remains that the production of rare earth is an environmentally-sensitive business. According to Chinese experts, the processing of one metric ton of rare earth can result in the production of approximately seven tons of strong acid. “The recovery rate for rare earths is less than 50 percent,” said Hongren. “In some illegal mines, the rate is as low as 20 percent. So if we can’t control and manage illegal activities, there will be significant damage to plant life and underground water supplies.”
“Green spin”
While the move might seem noble from a corporate aspect, others have argued that the invitation for a technological alliance is nothing more than a move aimed at putting a “green spin” on the country’s REE landscape leading up to a possible WTO investigation.
“There could be two elements,” said Michael Komesaroff, an expert on China’s metal industry from consulting firm Urandaline Investments. “One is that the Chinese may genuinely have a desire to improve environmental interests and they think they can learn from foreign technology. Another is that this is an olive branch because of the trade complaint taken to the WTO by the U.S. and the EU.”
News of the investigation has shaken the industry, and nowhere is this more evident than China. Less than a month after the WTO announcement, the Asian giant confirmed the creation of a rare earth association to fast track the unification of the diverse industry. As of May 1, China has allocated value-added tax permits to REE companies in Sichuan and Inner Mongolia in a bid to regulate overproduction.
First steps taken
Market observers have hailed the permit as Beijing’s first step toward controlling overcapacity, illegal mining, resource drainage, and pollution of mines in the industry.
“The new rule will help regulate the market supply to some extent, as rare earth producers will need to sell their finished products according to their output and export quotas in accordance with the new special invoice,” a Shanghai trader told Platts.
Despite market uncertainty associated with the impending investigation, it cannot be denied that the clampdown on illegal REE mining activities and an enhanced environmental focus on China’s REE sector are long overdue. While some feel that the environmental angle portrayed is all for show, it has highlighted the need for market diversification, as well as the need to push for technological advancements aimed at cleaner extraction of REEs.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.